China Scolds US After Standard & Poor’s Downgrade
The U.S. government got a good scolding from its largest foreign creditor China on Saturday after rating agency Standard & Poor’s downgraded America from AAA to AA+ for failing to sufficiently deal with its $14 trillion debt problem.
Official news agency Xinhua reprimanded Washington in a commentary for “living beyond its means.” The Chinese newspaper, which often serves as a mouthpiece for its communist government, rebuked the United States for accumulating what it estimates to be as much as $55 trillion in debt, with over $14 trillion of that being U.S. Treasury bonds. It calculates that the national debt amounts to $176,000 per person, or $670,000 per household.
In another opinion piece Saturday, Xinhua said, “The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone.”
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“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets.”
For the first time in history, the United States’ sterling credit rating was downgraded by Standard & Poor’s in an announcement made Friday night. S&P apparently was not appeased by the recent bipartisan budget agreement by Congress and President Obama.
The Budget Control Act 2011 raises the debt ceiling limit by $2.1 trillion, enough to allow the federal government to borrow money until 2013, and cuts discretionary spending by $917 billion and caps it for the next 10 years. It also creates a joint committee of Congress to reduce deficit between $1.2 and $1.5 trillion over the next 10 years.
China, which is estimated to hold at least $1.1 trillion in U.S. Treasury bonds, said Washington needs to rein in its spending and “cure its addiction to debts” in the Xinhua commentary.
Despite Beijing’s harsh words, there is still no safer market for China to invest its foreign exchange reserves than buying U.S. Treasury bonds. The European Union is dealing with its own set of debt problems and Japan is also wrestling with growing debt.
Although the United States was downgraded to AA+ rating, to put things in perspective, Japan, the world’s third largest economy, has a rating of AA-, which is two notch lower.
Japan, the United States’ second biggest creditor, did not lash out at Washington like China. Instead, the Japanese government was supportive despite the rating downgrade, saying U.S. Treasury bonds’ “attractiveness as an investment will not change because of this action,” according to Dow Jones.
